Railroads Update

This blog discusses three recent decisions issued by the Surface Transportation Board (STB or Board) in two demurrage proceedings that arose, in part, as a result of testimony and comments submitted in Ex Parte 754, Oversight Hearing on Demurrage & Accessorial Charges.

The Board Issues a Demurrage Policy Statement

            On April 30, 2020, the Board issued a Statement of Board Policy explaining the principles the Board will consider in evaluating the reasonableness of demurrage and accessorial rules and charges.  Policy Statement on Demurrage and Accessorial Rules and Charges, EP 757 (STB served April 30, 2020).  This policy statement was finalized following a notice of proposed statement of Board policy issued in October 2019 and a public comment period.  The Board noted that it is not making any “binding determinations” with the policy statement, and that the Board will continue to adjudicate specific cases based on all facts and arguments presented.  Id., slip op. at 3.

            The policy statement states that “the overarching purpose of demurrage is to incentivize the efficient use of rail assets (both equipment and track) by holding rail users accountable when their actions or operations use those resources beyond a specified period of time.”  Id., slip op. at 4.  That period of time must be “reasonable,” and charging demurrage for “delays attributable to the rail carrier” is “unreasonable.”  Id.  The Board further stated that “demurrage rules and charges may be unreasonable when they do not serve to incentivize the behavior of shippers and receivers to encourage the efficient use of rail assets.”  Id., slip op. at 21. The Board declined the invitation by some rail users to impose “prescriptive actions” on rail carriers beyond the regulatory actions taken in Ex Parte 760, Demurrage Exclusion Final Rule, and Ex Parte 759, Demurrage Billing RequirementsId., slip op. at 7.

            The policy statement addresses various demurrage-related issues that were raised before the Board.  First, the policy statement discusses demurrage free time— “the period of time allowed for a rail user to finish using rail assets and return them to the railroad before demurrage charges are assessed.”  Id., slip op. at 8.  The Board explained that in Ex Parte 754, Oversight Hearing on Demurrage & Accessorial Charges, rail users expressed concerns about certain carriers’ “recent reductions in free time.”  Id., slip op. at 9.  The Board stated that it “continues to have serious concerns about the adverse impacts of reductions in free time to rail users” and that in some circumstances, which would need to be examined on an individual basis, “such reductions may not be reasonable.”  Id., slip op. at 10.  The policy statement further notes the Board’s concern that free time reductions in certain circumstances could “jeopardize important goals of the nation’s rail transportation policy by rendering freight rail service less likely to meet the needs of the public” and potentially “less competitive with other transportation modes.”  Id.  The policy statement acknowledges that reductions in free time could be justified in certain circumstances, such as if technological advances make compliance with shorter time frames “reasonably achievable.”  Id., slip op. at 11.  In sum, regarding free time, the Board stated that “it will closely scrutinize demurrage rules and charges where free time has been reduced, or where no credit days have been provided.”  Id.

            Another issue the policy statement addresses is bunching.  Id., slip op. at 11-13.  The policy statement explains that “bunching should be addressed on a case-by-case basis in order to permit the Board to properly consider all relevant circumstances pertaining to an assessment of demurrage.”  Id., slip op. at 11.  The policy statement further expresses the Board’s view that “carriers should consider the actions of upstream carriers when administering their demurrage rules and charges.”  Id., slip op. at 12. 

            Regarding accessorial charges, the policy statement clarifies that “insofar as the purpose of an accessorial charge is to enhance the efficient use of rail assets in the same way as demurrage, the principles discussed in the policy statement would generally apply.”  Id., slip op. at 14.  The Board also clarified that its references in the policy statement to accessorial charges were intended to encompass only the accessorial charges of the type intended to enhance efficient use of rail assets.  Id.

            Next, the policy statement discusses overlapping charges—additional charges “for claimed customer-caused congestion or delay.”  Id.  The Board explained in the policy statement that, in adjudicating a specific case, “it would have significant concerns about the reasonableness of a tariff provision that sought to impose an overlapping charge intended to serve the same purpose as demurrage, or a charge arising from the assessment of demurrage for congestion or delay that is not within the reasonable control of the rail user to avoid.”  Id.  But, the Board stated, it would be “open to evidence and argument” in an individual proceeding that such a charge was reasonable.  Id.

            The policy statement states that the Board heard various concerns over the processes for disputing demurrage charges and with the lack of information (or inaccurate information) on demurrage invoices.  Id.  The policy statement explains that “[t]ransparency, timeliness, and mutual accountability are important factors in the establishment and administration of reasonable rules and charges for demurrage.”  Id., slip op. at 15.  The policy statement encourages Class I carriers to provide at a minimum a specific list of information related to demurrage and explains that the Board “expects rail carriers to bill for demurrage only when the charges are accurate and warranted . . . and to send invoices on a regular and timely basis.”  Id., slip op. at 16.  Regarding the dispute resolution process, the policy statement encourages rail users and carriers to make use of streamlined formal dispute resolution procedures that already exist both at the Board and elsewhere.  Id., slip op. at 17.

            Regarding credits, the policy statement explains that the Board “remains troubled by the lack of reciprocity between demurrage credits and charges, particularly where the expiration date of a credit, in effect, undermines the value of credits allocated for a problem or delay that was not within the reasonable control of a rail user.”  Id., slip op. at 19.  The policy statement recognizes, however, that “different types of credits might have different application methods or expiration time frames.”  Id.  In an individual case, the Board intends “to evaluate how credit rules and practices are administered in determining the reasonableness of demurrage rules and charges,” including “whether the rail user has been afforded a reasonable opportunity to make use of the credits in question, before any expiration date imposed by the rail carrier.”  Id.

            The policy statement addresses the issue of notice of major tariff changes.  The policy statement explains that “railroads should provide sufficient notice of major changes to demurrage and accessorial tariffs to enable shippers and receivers to evaluate, plan, and undertake any feasible, reasonable actions to avoid or mitigate new resulting charges.”  Id., slip op. at 20.  The Board acknowledged the 20-day notice period required by statute for changes to common carrier rates and service terms under 49 U.S.C. § 11101(c) but noted that rail carriers themselves recognize that this amount of time is not sufficient in certain cases and that they generally provide between 45 and 60 days’ notice.  Id. 

            Finally, the policy statement notes that a final rule issued concurrently in Ex Parte 759 (discussed below) deals with the issue of demurrage billing to shippers instead of warehousemen.  Id.

            The policy statement was effective on May 30, 2020.

The Board Adopts a Final Rule Regarding Demurrage Billing Requirements

            On April 30, 2020, the Board issued a final rule requiring Class I carriers to directly bill a shipper for demurrage when the shipper and warehouseman agree to that direct bill arrangement and notify the rail carrier.  Demurrage Billing Requirements Final Rule, EP 759 (STB served April 30, 2020).

            In Ex Parte 754, Oversight Hearing on Demurrage & Accessorial Charges, warehousemen—third party intermediaries that accept cars for loading/unloading but do not have a property interest in the freight—raised concerns regarding rail carriers’ billing practices after the Board issued the final rule in Ex Parte 707, Demurrage LiabilityId., slip op. at 3.  Ex Parte 707 established that rail car receivers, such as warehousemen, “may be held liable for demurrage if that person had actual notice, prior to rail car placement, of the demurrage tariff establishing such liability.”  Id.  The Board noted that some commenters suggested that warehousemen and shippers should be able to “determine between themselves which party should receive and be responsible for the demurrage bill.”  Id., slip op. at 4.  In response, the Board adopted the direct billing rule requiring Class I carriers to directly bill a shipper for demurrage when the shipper and warehouseman agree to that direct bill arrangement and notify the rail carrier. 

            The Board explained that for the direct billing rule to apply, the shipper must agree to the following two conditions: (1)  to “receive the demurrage bill from the Class I carrier” and (2) to “be liable to the Class I carrier for demurrage that accrues on all of the shipments received by the warehouseman from the shipper during the term of the agreement.”  Id., slip op. at 7.  The final rule added a provision clarifying that, while the shipper will be liable to the Class I carrier for demurrage under such an agreement, the shipper will not be “prohibited from seeking payment from the third-party intermediary for demurrage charges for which the third-party intermediary is responsible pursuant to an agreement between the shipper (or consignee) and the third-party intermediary.”  Id.

            The Board in the final rule also clarified a few points regarding the required notice to the rail carrier of the direct billing agreement between a shipper and warehouseman.  First, the Board explained that the shipper and warehouseman are required to “jointly notify the carrier of a direct-billing agreement.”  Id., slip op. at 8.  The Board also clarified that “the notice requirement does not expect that shippers and warehousemen share their contracts with Class I carriers.”  Id.  Third, the final rule requires that the notice provided to the rail carrier contain the shipper’s contact information.  Id., slip op. at 9.  Finally, under the rule, a party to such an agreement must notify both the Class I carrier and the other party to the agreement “that the agreement is no longer in force if and when appropriate.”  Id.

            In response to a rail carrier’s comment, the Board reasoned that this direct billing is not contrary to 49 U.S.C. § 10746, which states that a rail carrier “shall compute demurrage charges, and establish rules related to those charges.”  See id., slip op.at 9-10.  The Board explained, “[R]equiring railroads to bill shippers instead of warehousemen for demurrage under specific circumstances does not limit the railroads’ ability to compute demurrage and determine when it will apply.”  Id., slip op. at 10.  

            In addition, the Board addressed certain rail carrier comments that the direct billing rule “contradicts the regulations established in Demurrage Liability, EP 707.”  Id.  The Board explained that it may “modify existing regulations as long as its actions are rational and adequately explained.”  Id., slip op. at 11.  Further, the Board stated that, as before, “under [49 C.F.R.] § 1333.2, a ‘serving carrier and its customers (including those to which it delivers rail cars at origin or destination) may enter into contracts pertaining to demurrage.’”  Id.  This final rule “merely adds another option: a direct-billing arrangement between the shipper and warehouseman.”  Id. 

            The Board also addressed dispute resolution concerns raised by some Class I carrier commenters.  Id., slip op. at 12-14.  The rail carriers expressed concern that demurrage disputes often involve information that the warehouseman, not the shipper, possesses.  Id., slip op. at 12.  The Board concluded that “shippers that choose to enter into agreements with warehousemen are capable of determining . . . whether they are suited to assess the factual issues associated with a demurrage dispute.”  Id., slip op. at 13.  Furthermore, the Board reasoned, “If a particular demurrage dispute between the carrier and shipper involves information that is solely within the warehouseman’s possession, the discovery of such information is best addressed in the context of the individual dispute.”  Id. 

            Finally, the Board discussed the exclusion of Class II and Class III carriers from the final rule.  Id., slip op. at 13-14.  The Board reasoned that “the record indicates most demurrage issues pertain to Class I carriers,” but the Board “strongly encourage[d]” Class II and III carriers to voluntarily comply with this rule “to the extent they are able to do so.”  Id., slip op. at 14. 

            This decision is effective on June 20, 2020.


The Board Issues a Supplemental Notice of Proposed Rulemaking on Demurrage Billing Requirements

            In addition to the final rule regarding direct demurrage billing, explained above, on April 30 the Board also issued a Supplemental Notice of Proposed Rulemaking (SNPRM) in Ex Parte 759 requesting comment on modifications and additions to the minimum information requirements proposed in the Notice of Proposed Rulemaking (NPRM) in this proceeding.  Demurrage Billing Requirements Supplemental Notice of Proposed Rulemaking, EP 759 (STB served April 30, 2020).

            In October 2019, the Board issued an NPRM in this proceeding “to propose changes to its existing demurrage regulations to address several issues regarding carriers’ demurrage billing practices.”  Id., slip op. at 1.  The NPRM proposed requirements for minimum information to be included on or with Class I rail carriers’ demurrage invoices.  Id., slip op. at 2.  The NPRM also proposed requiring Class I carriers to directly bill a shipper for demurrage when the shipper and warehouseman agree to such an arrangement.  Id.  Based on the comments received on the NPRM, the Board decided to issue a final rule regarding the direct billing requirement and an SNPRM regarding the minimum information on demurrage invoices proposal.  Id., slip op. at 2-3.

            Specifically, the NPRM proposed the inclusion of the following information on or with invoices:

  • the unique identifying information (e.g., reporting marks and number) of each car involved;
  • the following shipment information, where applicable:
    • the date the waybill was created;
    • the status of each car as loaded or empty;
    • the commodity being shipped (if the car is loaded);
    • the identity of the shipper, consignee, and/or care-of party, as applicable; and
    • the origin station and state of the shipment;
  • the dates and times of:
    • actual placement of each car;
    • constructive placement of each car (if applicable and different from actual placement);
    • notification of constructive placement to the shipper, consignee, or third-party intermediary (if applicable); and
    • release of each car; and
  • the number of credits and debits attributable to each car (if applicable).

Id., slip op. at 3-4.  In the NPRM, the Board also proposed requiring that, prior to sending demurrage invoices, Class I carriers “take ‘appropriate action to ensure that the demurrage charges are accurate and warranted, consistent with the purpose of demurrage.’”  Id., slip op. at 4 (quoting NPRM, slip op. at 10). 

            In this SNPRM, the Board proposed to require the following additional information on or with demurrage invoices:

  1. the date range (i.e., the billing cycle) covered by the invoice;
  2. the original estimated date and time of arrival (ETA) of each car (as established by the invoicing carrier) and the date and time each car was received at interchange (if applicable), either on or with each invoice or, alternatively, upon reasonable request from the invoiced party; and
  3. the date and time of each car ordered in (if applicable).

Id., slip op. at 5.  In the SNPRM, the Board also stated that it is considering “requiring that Class I carriers provide access to demurrage invoicing data in machine-readable format.”  Id.  The Board requested comment on these additional proposed requirements.

            In addition, the Board in the SNPRM requested further comment “from the Class I carriers regarding what actions they currently take, and from all stakeholders on what actions Class I carriers reasonably should be required to take, to ensure that demurrage invoices are accurate and warranted.”  Id., slip op. at 11.

            Comments on this SNPRM were due on June 5, 2020.  Replies are due July 6, 2020.

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